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INTERVIEW: Thomson Reuters GFMS: Silver Could Reclaim $30/Oz In 2013

(Kitco News) - Silver prices could return to above $30 an ounce yet in 2013 if catalysts should occur to reignite fund demand, such as a weaker U.S. economy or if cantankerous U.S. budget and debt-ceiling talks prompt another downgrade of the country’s debt, a leading precious-metals consultancy said Wednesday.

“For the moment, we would expect to see a continuation of the price volatility that we’ve seen of late,” said Neil Meader, head of precious metals research and forecasts at Thomson Reuters GFMS. “We would like to think we’ve seen the bottom. We’ve seen some decent physical buying come in during the last couple of weeks to help underpin the market.

“Gold has tended to grab the headlines, but you are seeing some replication in silver…We’ve got a decent underpinning, so you could see prices begin to firm.”

Meader, speaking with Kitco News in conjunction with the release of the Silver Survey 2013 compiled for the Silver Institute, said that U.S. Mint silver bullion coin sales so far this year are well ahead of their pace from 2012. As of the end of business Monday, the U.S. Mint Web site showed silver coin sales of 17.291 million ounces so far this year. The total for the full January-April period a year ago was 11.659 million.

Still, Meader said, silver prices may not rise substantially until funds are willing to wade back into the market. “They would need a much clearer external trigger,” he said.

One such catalyst, he continued, would be if the U.S. economy wobbles further, meaning the Federal Reserve’s quantitative-easing program will last longer than many might currently expect. Another potential trigger could occur when U.S. budget and debt-ceiling negotiations intensify, perhaps around July.

“If we get any word of a U.S. credit rating downgrade, that could be quite significant for the price,” Meader said. “You only have to look back to the summer of 2011 when the U.S. had a credit downgrade. That added $200 to the gold price.”

And, when gold surges sharply on a safe-haven bid, silver tends to follow.

“You could easily get a scenario where we get back over $30 and maybe even get to $32,” Meader said.

However, he said, some of the gains might be unwound toward 2014, particularly whenever the economy normalizes and U.S. interest rates look like they may be headed higher.

“The unknown for the longer term is inflation,” Meader said. Should this escalate, it could mean buying of precious metals as a hedge.

There are presently mixed views on whether inflation or deflation will be the ultimate outcome. There is a view among many that industrialized nations may welcome some inflation of say 4% or so, as this would not necessarily “spook” the markets but would essentially reduce the nominal value of their debt, Meader explained.

“If we were to move into a situation of modestly higher inflation, that is going to be supportive,” Meader said. It’s too soon to say whether inflation will surge rapidly enough to trigger an aggressive gold rally, with silver tagging along.

“But I think it would be foolish to completely ignore the inflation question,” Meader concluded.

The Silver Survey reported that average silver prices of $31.15 an ounce in 2012 was the second-highest on record but nevertheless was down from the prior year.

“It would be wrong to assume that a year-on-year price fall automatically presages an end to the multi-year rally; that occurred in 2009 and yet prices (basis the annual average) then more than doubled in just two years,” the report said.

“The drop in the gold:silver ratio also only took its 2012 average to a level broadly in line with the long-term average. This is important as, looking ahead, we expect macroeconomic developments to feed through to a marked rally in the gold price and, with plenty of room for the gold:silver ratio to contract, particularly if memories of uncomfortable investor losses in silver during 2011 continue to fade, it is easy to see decent scope for sizable gains in the silver price this year.”

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